US stock markets open at a record high
They aren’t huge moves, but stock markets on Wall Street have opened at new record highs.
- S&P 500 UP 6.12 POINTS, OR 0.18 PERCENT, AT 3,484.85 AFTER MARKET OPEN
- DOW JONES UP 90.65 POINTS, OR 0.32 PERCENT, AT 28,422.57 AFTER MARKET OPEN
- NASDAQ UP 17.16 POINTS, OR 0.15 PERCENT, AT 11,682.22 AFTER MARKET OPEN
Q: On the new average inflation targeting strategy, how will this be communicated and how will it change things?
Public communications are very important, Powell says.
We’re talking about “moderate” overshoots, not “permanent or for sustained periods of time”, he says. This is not a formulaic approach.
I think it is the approopriate solution, he says. Undershoots of inflation are not frogotten but are made up later.
Powell says the central bank will engage in regular reviews of monetary policy roughly every five years, and with that he is finished – but there is a Q&A coming up (via a rickety connection with the questioner).
It is a robust updating of our monetary policy framework, Powell says.
The bank will be highly focused on fostering as strong as labour market as possible for all Americans, as well as steady inflation over time.
Powell: Federal Resrve will allow inflation to run above 2%
To counter the risks of running out of firepower the bank is prepared to use the full range of tools, Powell says.
A robust job market can be sustained without an increase in inflation, Powell says – unlike in the past.
The central bank will aim for inflation “moderately above 2% over time”, targeting an average of 2%.
The dollar is weakening as Powell speaks (with a dovish message so far).
US DOLLAR INDEX DECLINES TO 92.67, EURO JUMPS TO $1.1870 AFTER POWELL COMMENTS
Longer-term inflation expectations may have been holding down inflation more than expected, Powell says.
Persistently low inflation is a “cause for concern”. It can cause a serious risk for the economy and a “adverse cycle” of ever lower inflation expectations.
This would give less scope for cutting interest rates in a downturn.
Once it sets in it can be very difficult to overcome, and the central bank wants to prevent it happening in the US, he says (perhaps a reference to Japan’s experience).
There have been four main developments in understanding of monetary policy, Powell says:
- Assessments of the long-run growth rate have declined.
- Interest rates have fallen across the world, partly because of demographic and population growth. The Fed has less scope to support the economy in a downturn because of this.
- Following the crisis the best labour market that had been seen for some time developed.
- The historically strong labour market did not trigger strong inflation, despite repeated forecasts that it would do so.
The Federal Reserve’s updated framework has been published here.
Inflation targeting has had an emphasis on transparency, showing the understanding that public communication is important for monetary policy, Powell says.
Powell is summarising the development of the inflation targeting regime through previous chairs.
A 2012 update was a “significant milestone”, but it happened early on in the recovery from the financial crisis, but the understanding of monetary policy has developed since then.
Jerome Powell makes Jackson Hole speech
The Federal Reserve’s monetary policy framework must adapt, Powell says.
The central bank has published details of the new framework which he will discuss.
Much more to follow on the speech.
Jerome Powell will be starting in less than 10 minutes.
You can watch an introduction followed by his speech live here: